Three out of five pensioners plan to shun free retirement advice from Government

THOUSANDS of older people plan to turn their backs on the offer of free retirement advice.

Help is at hand as professional adviser can warn against unsuitable products [GETTY - Picture Posed By Models]

Under Government plans to revamp the pension system, from April next year everyone will be entitled to a meeting with a professional adviser at no cost when they reach retirement.

The initiative is designed to help savers work out the best way to use their pension cash to fund their old age.

However, research published this week by MGM Advantage has found that only four in 10 people plan to take up the offer of free expert advice.

It is not yet clear who will be responsible for providing advice.

Overcoming inertia plays a crucial role in getting the best value from your retirement savings, so this service will need to be carefully marketed to make it effective

Andrew Tully, technical director for pensions at MGM Advantage

Ministers brought an official consultation period to a close last month and it is thought that the guidance could be provided either by pension firms, or non-profit or State organisations such as the Pensions Advisory Service or the Money Advice Service. The need for guidance is expected to grow due to the increased flexibility which will be available to savers from next year.

Following changes announced in March’s Budget, it will become easier to leave money invested and take a regular income from it, a process known as drawdown, rather than buying an annuity, which provides a guaranteed income for life.

Lower tax rates mean that more people are expected to take the whole of their pension pot as a lump sum.

Andrew Tully, technical director for pensions at MGM Advantage, said: “The industry will need to work hard to encourage people to access the guidance service.”

He warned that there was a risk that people who did not seek help could end up having their savings automatically moved into an unsuitable product.

“Overcoming inertia plays a crucial role in getting the best value from your retirement savings, so this service will need to be carefully marketed to make it effective,” he added.

“As about half of retirees simply rolled over into an annuity with the holding provider in the old world, it was clear parts of the market were not working properly.

“If many continue to roll over into the holding provider’s drawdown or annuity or other solution, the market still won’t be working properly.

“That’s why access to guidance and good advice will play such an important role.”

The importance of advice has also been highlighted by a study carried out by retirement income company Aegon.

It found that 44 per cent of those approaching retirement now plan to take all the money out of their pension funds due to the lower tax rates.

From next April people will still be able to take a quarter of their funds tax free but the remainder will be taxed at their personal rate, usually 20 per cent or 40 per cent.

Currently, withdrawals such as this are taxed at a punitive 55 per cent.

Aegon said that most of those aiming to cash in their pensions planned to put the money into savings accounts or Isas.

Related articles

Spokesman Gavin Casey said: “It think it’s interesting that putting the money into a bank account is the first thing people thought of doing if they were to lay their hands on cash from their pension pots.

“While this is arguably preferable to blowing it all on a sports car, there’s little point cashing in only to leave the money languishing in a low-rate account, especially when you need to secure a regular income.

“It’s so important to investigate all options.

“This money is needed to fund an increasingly longer proportion of all our lives, so the harder you can make it work before then, the better.”

Michelle Cracknell, chief executive of the Pensions Advisory Service, said: ‘This is a good reminder that we will have to work very hard to demonstrate to people the benefits of taking guidance.”